Southwest Airlines posts biggest-ever loss as coronavirus slams demand

Key Points
  • Despite its biggest loss ever, Southwest Airlines was able to cut its cash burn.
  • Bookings have improved in recent months, the carrier said, but it warned a recovery is still far off.
  • The Dallas-based carrier recently asked unionized employees to take a 10% pay cut to avoid furloughs through next year.
A Southwest Airlines jet leaves Midway Airport on in Chicago, Illinois.
Scott Olson | Getty Images

Southwest Airlines on Thursday posted its biggest loss ever after the coronavirus pandemic hurt the summer travel season, but the airline cut its cash burn and was upbeat about new bookings.

U.S. carriers' losses topped $10 billion in the third quarter as the pandemic kept many customers at home, particularly lucrative business travelers. Executives have warned it could take years for the business to fully recover.

"We are encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July," CEO Gary Kelly said in an earnings release. "However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile."

Airline shares were sharply higher on Thursday afternoon on sunnier commentary about demand, particularly around the holidays, and continued talks for additional federal aid. Southwest shares were up nearly 6%, American Airlines' were up close to 4% and Delta shares were about 7% higher. United was up 5%.

American reported a $2.4 billion third-quarter loss on Thursday. Southwest's revenue dropped 68% to $1.79 billion from $5.6 billion a year earlier. The Dallas-based carrier lost $1.2 billion in the three months ended Sept. 30, compared with a $659 million profit a year earlier. Adjusting for one-time items, Southwest's loss was $1.99 per share, better than analysts' expectations for a $2.35 per share loss.

Southwest said it will soon stop blocking middle seats, a measure it had in place to calm travelers worried about traveling during the pandemic.

"This practice of effectively keeping middle seats open bridged us from the early days of the pandemic, when we had little knowledge about the behavior of the virus, to now," Southwest said. "Today, aligned with science-based findings from trusted medical and aviation organizations, we will resume selling all available seats for travel beginning December 1, 2020."

Southwest trimmed its cash burn to an average of $16 million a day in the three months ended Sept. 30, from $23 million in the second quarter. Southwest said operating revenue would need to recover to 60% to 70% of 2019 levels, double the third quarter's sales, to break even.

Southwest expects its capacity in October to be down 45% from a year ago and down 40% for the fourth quarter from last year.

Southwest CEO: It could take 10 years for business travel to bounce back
Southwest CEO: It could take 10 years for business travel to bounce back